Good evening. I'm Lawrence O'Donnell in New York, in tonight for Chris Matthews. Leading off tonight: Face-off. We now know how to get your name and picture on the front page of "The New York Times." Say something loud and nasty to a senator, and they'll put you above the fold. If there is one lesson we've learned from all the angry health care town hall meetings, it is that it's a lot easier to get a crowd of people who are opposed to reform than a crowd in favor.

The big question is how many of these noisy opponents have been organized into position by lobbyists and how many are part of a genuine grass roots uprising? Much of the anger has been fueled by lies and misinformation. Here's a typical moment from Senator Ben Cardin's town hall today in Hagerstown, Maryland.

SEN. BEN CARDIN (D), MARYLAND: I think that the Obama administration has already started to restore trust in health care by the...

(SHOUTING, BOOS)

(END VIDEO CLIP)

O'DONNELL: Missouri senator Claire McCaskill and Georgia congressman David Scott have both been confronted by angry constituents, and they'll join us in a moment. And remember this woman at Senator Arlen Specter's town hall?

(BEGIN VIDEO CLIP)

KATY ABRAM, ATTENDED SEN. SPECTER TOWN HALL: ... awakened the sleeping giant. We are tired of this. This is why everybody in this room is so ticked off. I don't want this country turning into Russia, turning into a socialized country.

(END VIDEO CLIP)

O'DONNELL: Her name is Katy Abram, and she'll be here to explain why she is fighting against health care reform.

Plus, new evidence shows that Karl Rove was more deeply involved in the firings of those U.S. attorneys during the Bush administration. So is the law finally catching up to Rove? "Newsweek" investigative reporter Michael Isikoff will break it down for us.

And how did the White House and the Democrats get the strategy for Justice Sonia Sotomayor's confirmation vote so right but then drop the ball when it came to the message war over health care reform? That's in the "Politics Fix."

And finally, President Obama awarded the Presidential Medal of Freedom to 16 recipients today, among them Senator Ted Kennedy, Sidney Poitier, Billie Jean King and Archbishop Desmond Tutu of South Africa.

But first, we begin with the rage over the health care bill. With us now is Congressman David Scott, a Democrat from Georgia. Congressman Scott, you've faced really angry outbursts over this. How does this compare-you've been in the-you're in your fourth term in the House. You were in the state legislature before that. Surely, you've run into a lot of opposition for a lot of legislative ideas in the past. How does this compare to the kind of opposition you've run into in the past?

REP. DAVID SCOTT (D), GEORGIA: There's nothing like this. I don't think there's been anything like this in the recent history of our country in terms of the political process over such an issue as health care, and to have swastikas brought into this that has nothing to do with health care, or to have the racial slurs and all of this that we have that's being brought into it.

And we've got to stand firm and we've got to be strong, and I hope that especially Democrats and President Obama can be encouraged to continue this fight. We've got to be heard. These voices that are coming up, they don't want to have this debate. They don't want us to be able to explain why a public option is needed. If you're going to mandate health care for everyone, health care insurance, then you've got to have a mandate for those people who have no health insurance that they can have. And that's what the public option is for, and to be able to provide some kind of leverage with these insurance companies who are having these skyrocketing premiums that are going through the roof that is driving this health care economy and our whole economy in the ground.

We have to get out and explain that. We have to respond to Ms. Palin when she says "Obama's death panel" and clearly point out to people that what we have in here is nothing more than what's in the Medicare bill and the Medicare law now, that people love, are satisfied with. And that is, that if you would like to have some end of life counseling, then that's available on a voluntary basis to you, that the government will pay for. And you don't have to have it. That is reasonable. Or the abortion-to come and raise the abortion issue when we know that the Hyde amendment already outlaws any federal money for that.

We must not let the swastika that's on my office right now or a letter or something like this-and I hope your cameraman can get it and see it. If not, it's a picture here-this is a picture of Obama dressed up like the joker on "Batman" with the communist sickle in his forehead, and then it says, "Marxism, death to Marxism, death to foreign and domestic," kind of picking the birthers there. "To nigger David Scott, you were, you are and you shall forever be a nigger, and the Ethiopian cannot make himself white."

What in the world does this have to do with health care? One reason, to get us off target, to get us away from dealing with this in a way.

But I'm here to tell you that we have some strong people in this country. This is a great country. We have the talent and the skills that we can come together. If we can come together and show the greatness of America by electing the first African-American as president of the United States, that's what speaks for America, not this, not the swastika. And that's why we can't let the swastika or hate mail or any of this racial stuff that we're getting into us or congressmen getting death sentences or being-we are not going to let that win and drown out the debate.

And I think that when we get back in September after the town halls-and they knew-this is not something that just popped up. These people knew when Rush Limbaugh says, I don't want him to succeed, I want him to fail, or Senator DeMint says, This is his Waterloo, we can kill him-well, these are millions and millions of people listening to this...

O'DONNELL: Congressman Scott...

SCOTT: ... who have all kinds of problems.

O'DONNELL: Congressman Scott, there are also some successful town meetings going on out there. In fact, in Atlanta, not far from your district, Representative Hank Johnson seems to have had a pretty smooth, successful meeting with over 2,000 people in the room. Is something changing in Georgia? Do you think you're going to be able to have a better dialogue than what's been going on so far?

SCOTT: I think so and I hope so. We're having our town hall, the one that I'm setting aside for health care, this Saturday on the 15th from 10:00 to 2:00 PM at the Mundy's Mill High School in my district. And we hope for a very civil situation so that we can get the clear understanding and communicate to the American people exactly how we're going to do this very complex, difficult thing of bringing down the price of health-cost of health care insurance, while at the same time expanding it to others.

And our people deserve calmness, the deliberative debate. This is a complex issue. It is complicated. But when people come with the pre-agenda to make noise, to disrupt, to make sure you don't do that, hopefully, that will run its course. My hope is that it has and that we'll give President Obama and us, the Democrats and the Republicans-because it is important that we have this going in a bipartisan manner. And I think we can-and we can pull some Republicans to work with us to be able to get a good bill.

We-this is America. We could put a man on the moon and do the great things America's done, surely we can come together and get a health care bill that will bring down the cost and expand the service in a way that we can bring the American people along with us.

O'DONNELL: Congressman Scott, thank you very much for joining us today.

SCOTT: Thank you for having me. I appreciate it so very much.

O'DONNELL: Joining us now in Missouri, Senator Claire McCaskill. Senator McCaskill, You've had a much publicized noisy meeting where the reviews for you, by the way, are very positive. The reviewers seem unanimous in the notion that there's at least one United States senator who knows how to control an unruly classroom. Now, where did you pick up those skills?

SEN. CLAIRE MCCASKILL (D), MISSOURI: Being a mom.

(LAUGHTER)

MCCASKILL: In fact, I said at one point during the meeting, I'm going to have to use my mother voice. I have, you know, three teenagers-well, one's not a teenager anymore, but three teenagers, one just not a teenager. And so I had to do that-in fact, I apologized on my Twitter afterwards, saying I was a little condescending.

O'DONNELL: Well, you managed to get through it and you managed to actually have a real dialogue about this. I want you to listen to something that Senator Chuck Grassley said today. This is important because you have not been in the room of six at the Senate Finance Committee...

O'DONNELL: ... where they're trying to work out a deal that will be a bipartisan deal that they're hoping can get 60 votes in the Senate, at least, and move through the Senate smoothly. It's a small group. You are you who have been excluded are all wondering what's going on there. And are we in really-the Democrats in really good faith negotiations with Republicans like Grassley and Mike Enzi and Olympia Snow.

I want you to listen to what he said today about this issue of the so-called "death panels." Listen to this.

(BEGIN AUDIO CLIP)

SEN. CHUCK GRASSLEY ®, IOWA: And from that standpoint, you have every right to fear. You shouldn't have counseling at the end of life. You ought to have counseling 20 years before you're going to die. And you ought-you ought to plan these things out. And you know, I don't have any problem with things like living wills, but they ought to be done within the family. We should not have-we should not have-we should not have a government program that determines if you're going to pull the plug on Grandma.

(END VIDEO CLIP)

O'DONNELL: That wasn't easy audio to listen, to hear, Senator McCaskill. I'm going to read you the last line of it, which is the most relevant point...

MCCASKILL: I heard it, yes, that...

O'DONNELL: He simply says-his whole point ends up being, We should not have a government program that determines if you're going to pull the plug on Grandma."

Now, Senator Grassley should by this time be well versed in the House bills. Shouldn't he be able to tell Iowa voters there is no provision, no wording, no sentence, nothing in any bill that provides for a government panel to end Granny's life? That was a fictional invention by Sarah Palin and others on Chuck Grassley's side of the aisle.

MCCASKILL: Yes. Chuck's just wrong about that. And I think he needs to call Johnny Isakson, the Republican senator from Georgia, because this has been one of his causes, is making sure families-not the government and not a doctor that doesn't have the benefit of the patient being able to communicate-make decisions ahead of the end of life. And all this is doing is saying you're entitled to counseling. You and your family is entitled to counseling. That's all it does. And Isakson I believe is the one who put it in the Senate bill, his Republican colleague from Georgia.

So Chuck's just wrong about that. I'm sure he probably said it in a way that he didn't mean to. I don't want to say that he purposely is misleading folks. But it just is not true. We would never do that. It's wrong morally. It's not American. And by the way, it's not even smart politically.

O'DONNELL: Senator McCaskill, this was going to be a tough sell in the politics of Missouri even with a decorous audience to your town hall meetings. How are you going to get through the rest of the month trying to sell this in your state, especially since there isn't a particular Senate bill you can say you are in favor of at this point?

MCCASKILL: Well, I think most Missourians know we need health insurance reform. We need consumer protection. It is wrong that somebody can get very ill and an insurance company can pull the rug out from under them. And as long as we focus on what is going to be in it for most Missourians-which is insurance reform, and hopefully, taking a whack at a deficit that's out of control because of some of the waste we have in our health care system right now-I think that we can do this.

It's important to be respectful and get around the state and listen and-but correcting the misinformation out there, and there's lots of it, is a really important part of our job this month.

O'DONNELL: Now, there are-I think we've seen some very respectful questions from the Republican side of these audiences in some of these town halls, especially for President Obama. But what's been drowned out, it seems to me, is a lot of the sharp questioning that would be taking place from the left at this point, on things like, Why have you abandoned going for a single-payer system, Medicare for all, for example. And we don't see what the-what I know the left had been planning for this recess, which was a very strong push for the government option.

Does this mean that the way the debate is going, the way it's being dominated by the opponents in these town halls, is inevitably going to push the bill in a softer direction, inevitably push it much more toward what Republicans like Chuck Grassley actually want?

MCCASKILL: Well, I'm not sure. I think all of us-while we listen to everyone who comes to the town hall meetings, I think we know that most people who come have had their minds made up. And most of Missouri won't show up at a town hall meeting. Most of them are not going to write a letter or an e-mail. Most of them aren't going to protest outside of my office. Most of them aren't on the far left or the far right.

That's really the folks that I'm going to try to pay close attention to in trying to find that compromise, that middle ground that will reform insurance, stabilize health care costs for middle class families, and do something about the waste in our system that is driving our deficit. If we can get those three legs of the stool done, I think we'll get a good bill. And it may be a public option, it may be a co-op, but I think those are the three things we've got to really focus on.

O'DONNELL: OK. Thank you, Senator McCaskill.

MCCASKILL: OK. Thank you, Lawrence.

O'DONNELL: Coming up: What is behind all this rage that is shown in the town hall meetings? We'll hear from one protester.

UNIDENTIFIED MALE: If this is for the good of the people, why are you in such a big, fat hurry? Why were in such a hurry with the "porkulus"? Why were you in such a hurry with the cap-and-trade? Why does it have to be done so fast, in six months? And why is our government over $2 trillion or whatever it is in debt? If you guys can't run a checkbook, how in the world are you supposed to run a health care plan?

(CHEERS)

(END VIDEO CLIP)

(COMMERCIAL BREAK)

O'DONNELL: Welcome back to HARDBALL. Let's watch this moment from Senator Arlen Specter's town hall yesterday.

(BEGIN VIDEO CLIP)

ABRAM: I don't believe this is just about health care. It's not about TARP. It's not about left and right. This is about the systematic dismantling of this country. I'm only 35 years old. I've never been interested in politics. You have awakened the sleeping giant. We are tired of this. This is why everybody in this room is so ticked off! I don't want this country turning into Russia, turning into a socialized country. My question for you is...

(CHEERS AND APPLAUSE)

ABRAM: What are you going to do to restore this country back to what our founders created according to the Constitution?

O'DONNELL: Joining us now, the woman you just saw, Katy Abram. Katy Abram, I know you're not a regular at this stuff and you don't do it every day, so take it easy. We're just going to go through some simple questions about this.

ABRAM: OK.

O'DONNELL: What got you to Senator Specter's town hall? What made you want to go?

ABRAM: Just for sheer frustration. You know, I see all these things being pushed through very quickly-TARP, this health care bill, cash for clunkers. And the frustrating thing to me is that this is-these programs are being funded by me, my husband, our friends, our family. We have a small business, and the amount of taxes we pay out on that, it's ridiculous, and yet they want us to pay more, or it sounds like they want us to pay more. So that's the root of my frustration. This was the straw that broke the camel's back.

O'DONNELL: Katy, in the plans that have been discussed so far, the increase in taxation would occur only on families with incomes over $250,000. Would that include you and your family?

ABRAM: Honestly, I'd rather not say. I don't even know. My husband takes care of the bills and everything. You know, he takes care of us, and that's all that matters.

O'DONNELL: Do you have health-do you and your family have health insurance?

O'DONNELL: Do you have health-do you and your family have health insurance?

ABRAM: Yes, we do have health insurance.

We have a health savings account that we pay for ourselves. We-we have a 5,000-plus-dollar deductible that, basically, in the course of a normal year, we will pay for all of our medical-medical needs out of pocket, doctors' visits.

This year's been a little more difficult, because my son has had surgery, and it looks like we're looking for-at a second one. We're almost at our deductible. So, that's a good thing. But that was a choice that we made. That's what we wanted to do.

And I want to be able to keep that choice. I don't want to be forced or slowly coaxed into a single-payer system. I want to have my choice.

O'DONNELL: Well, do you believe the president when he says, if you like the health care plan you have, as you say you do, you can keep that health care plan? Is that something, when you hear it, you simply don't believe it?

ABRAM: I don't believe it because I heard him say on a quote on television that, you know, it may take five or 10 years, but we will move to a single-payer health-or to a single-payer...

(CROSSTALK)

O'DONNELL: He-Katy, he's never that. He has never said we will move to a single-payer plan.

ABRAM: I heard-I heard it on TV. I heard it on TV. I heard him saying it.

O'DONNELL: The president of the United States-Katy, the president of the United States has never said.

O'DONNELL: So, are they-when they cross the line into 65, are they going to not participate in Medicare? Would you like them-would you tell them please don't participate in Medicare because it's a single-payer government-funded system? Have you had that conversation with them?

O'DONNELL: You said in your statement that you're 35 years old, and nothing has gotten you interested in politics before.

And what's interesting to me about that is, that means you, as an adult, lived through 9/11.

ABRAM: Yes.

O'DONNELL: You lived through the invasion of Afghanistan, the war in Afghanistan, the first chapter of what became two wars in the Middle East ,including the Iraq war.

You-you lived through all of that, and were not, as you put it...

ABRAM: Yes.

O'DONNELL: ... awakened into an interest in politics. How could those things pass through your life like this, and-and not spark any interest in politics, prior to the-Washington saying we think we want to help out some people who can't afford health insurance the way you can? Why would it-why would this be the thing that wakes you up, after you were-you were willing to just ignore politics as we went past 9/11 into Afghanistan, into Iraq?

I-I always seemed to have faith in the government. And, honestly, I didn't really care. I had other things going on, you know, getting married, having children. It just-it wasn't a priority in my life.

And, you know, I really didn't start even watching the news at all, I think, until maybe 1991, I guess it was, when we first went to the Gulf War. I remember watching CNN with my dad and watching the-the infrared missiles going across that you could see. And I think it-to me-maybe I'm just not that smart, but, you know, it seems like we have kind of been at war for-since then. I mean or maybe even before. I don't know. It just always seems like we're-we're having some kind of conflict. So, that-you know, whether-about wars, I don't know. That just seems commonplace now. I think everybody's just so used to it. But you asked why-why-what has woken me up to-why I have woken up to get to this point.

O'DONNELL: Well, let me-let me actually-let me just go now to the-what-the question you actually put to Arlen Specter, which was, you said to him...

ABRAM: Sure.

O'DONNELL: ... what are you going to do to restore this country back to what our founders created, according to the Constitution?

Let's just go through a checklist of what you think that would require. I assume that would require repealing Medicare, because that's a single-payer government-funded health care system, which is socialism. I agree with you, by the way. That is socialism. I think it's successful, practical, smart socialism, but it is definitely socialism.

So, you would want to repeal that, wouldn't you?

ABRAM: I hate to have words put in my mouth. I mean, I-I honestly...

(CROSSTALK)

O'DONNELL: Well, the founding fathers did not anticipate Medicare. So, we can repeal that, can't we, in order to get back to what you think the founding fathers would have us do?

ABRAM: Yes, I think a lot of the programs that-that are in place were not supposed to be-were not supposed to be here.

O'DONNELL: Because that's actually a piece of socialism that we imported from Germany. Bismarck invented that program. So, we should-that-that is also socialism. I agree with you on that. Again, I think it is smart, practical socialism, but it is socialism.

So, I guess you would want us to repeal that?

ABRAM: I would hate to say yes or no.

I mean, I-you know, yes, I mean, there are programs in place that, you know, the-the founders did not want to have here. The-you know, I know that there are people out there that can't afford health insurance, that can't afford a lot of different things. And, you know, with the founders, they had-they thought and hoped that the goodness of the people would allow the people to take care of those who could-who were doing without.

And I know that may seem naive in today's world. We stayed at a friend's house last night who is at the other end of the spectrum than what I am. And we have had political debates a million times over. And he thought, isn't it naive, you know, to think that way? People don't do that anymore.

And I said, not everybody, but a lot of people that I know go on missions. They-they-they volunteer.

O'DONNELL: Katy, I-Katy-Katy, I assume, when you were having that debate in your friend's house, it was a civil debate, and no punches were thrown, and everybody had a perfectly decent disagreement, right?

O'DONNELL: Good. Well, that-that's the way I think we can discuss this in this country.

Katy Abram, thank you very much for doing this today. I know this is not what you do every day. And I appreciate you coming in.

ABRAM: OK. Thank you.

O'DONNELL: OK.

Up next: a look at two celebrations at the White House today, a welcome ceremony for the Supreme Court Justice Sonia Sotomayor and awarding the Presidential Medal of Freedom to 16 honorable recipients.

You're watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

O'DONNELL: Back to HARDBALL.

Today, President Obama took a break from the battle over health care to host two emotional White House ceremonies honoring some extraordinary individuals.

First, the president held a reception for Justice Sonia Sotomayor, the first Hispanic on the Supreme Court, calling her arrival-quote-"an extraordinary moment for our nation"-end quote.

I am most grateful to this country. I stand here today knowing that my confirmation as an associate justice of the Supreme Court would never have been possible without the opportunities presented to me by this nation.

It is this nation's faith in a more perfect union that allows a Puerto Rican girl from the Bronx to stand here now.

(CHEERING AND APPLAUSE)

(END VIDEO CLIP)

O'DONNELL: A well-deserved standing ovation for the newest addition to the high court. Hers is an American story everyone can be proud of.

In the celebratory crowd at the White House was the widow of New York Senator Daniel Patrick Moynihan, my former boss, the man who selected Sonia Sotomayor to become a federal judge in 1992. He said then he thought she would go all the way. This is what he meant by all the way.

The old man studies the starfish in his hand and tosses it to safety, saying, "It makes a difference to that one."

For nearly half a century, Ted Kennedy has been walking that beach, making a difference for that soldier fighting for freedom, that refugee looking for a way home, that senior searching for dignity, that worker striving for opportunity, that student aspiring to college, that family reaching for the American dream.

The life of Senator Edward M. Kennedy has made a difference for us all.

(END VIDEO CLIP)

O'DONNELL: And that is an understatement.

Congratulations again to Senator Kennedy and all of today's Medal of Freedom recipients.

Up next: What role did Karl Rove play in the firing of U.S. attorneys back in 2006? And was it all political?

Stocks posting solid gains today on an encouraging housing report and a rosy outlook from the Fed. The Dow Jones industrials added 120 points. The S&P 500 is up 11.5, and the Nasdaq gained about 29 points.

The Federal Reserve says the economy appears to be leveling out, after 20 months of recession. That's more upbeat than the June assessment, when it said the economy was shrinking at a slower pace.

As expected, the Fed held the short-term interest rate steady, near zero. The Fed also said it would extend, not expand, a program to buy long-term Treasury offerings.

More signs of life in the housing market-existing home sales rose 3.8 percent the second quarter, with prices up about 4 percent from last quarter. But that's still about 16 percent below last year's prices.

That's it from CNBC, first in business worldwide-now back to

HARDBALL.

O'DONNELL: Welcome back to HARDBALL.

Newly released transcripts of closed-door testimony show Karl Rove played a key role in the ouster of U.S. Attorney David Iglesias, one of the nine federal prosecutors fired in 2006.

Here's Iglesias testifying before the Senate Judiciary Committee about a phone call from then Republican Senator Pete Domenici. Let's listen.

(BEGIN VIDEO CLIP)

DAVID IGLESIAS, FIRED U.S. ATTORNEY: He wanted to ask me about the corruption matters or the corruption cases that had been widely reported in the local media.

I said, all right.

And he said, are these going to be filed before November? And I said I didn't think so, and to which he replied, I'm very sorry to hear that. And then the line went dead.

SEN. CHARLES SCHUMER (D), NEW YORK: Is it fair to say that you felt pressured to hurry subsequent cases and prosecutions as a result of the call?

IGLESIAS: Yes, sir, I did. I felt leans on. I felt pressured to get these matters moving.

SCHUMER: Mm-hmm. And, as you say, it was unusual for you to receive a call from a senator at home while you were the U.S. attorney?

IGLESIAS: Unprecedented. It had never happened.

(END VIDEO CLIP)

O'DONNELL: Senator Domenici's staff then made clear to Karl Rove they wanted Iglesias gone. So, what does this newly released information say about Rove's involvement? Joining me are "Newsweek"'s Mike Isikoff and "The Washington Post's" Carrie Johnson.

CARRIE JOHNSON, "THE WASHINGTON POST": We have learned that Karl Rove was more involved and interested in the roles of some of his U.S. attorneys than had previously been described. In an interview with me last month, Rove described his role as one of almost a bystander or a conduit of complaints he received from lawmakers on Capitol Hill and state GOP party leaders around the country.

But some of these e-mails and, in fact, the testimony of Harriet Miers reflects that Rove took a personal interest in at least some of these cases, most particularly David Iglesias' in New Mexico.

Harriet Miers testified to the-to the House Judiciary Committee that Rove called her in a very agitated manner in the fall of 2006 to report that David Iglesias had become a big problem, and that he, Rove, wanted something done about it.

O'DONNELL: Yes, according to testimony, it-it says Harriet Miers said of Rove: "My best recollection is that he was very agitated about the U.S. attorney in New Mexico. It was clear to me that he felt like he had a serious problem and that he wanted something done about it."

Michael Isikoff, in "The Sopranos," when Tony wants something done about it...

(LAUGHTER)

O'DONNELL: ... we understand it. He doesn't have to be more specific than that.

ISIKOFF: Exactly the way anybody would read it, that Rove was playing a direct role-had taken it upon himself to try to get rid of David Iglesias as the U.S. attorney. And what's important to realize here, Rove put out a statement last night which is almost as stunning as the testimony in which he says the new material shows politics played no role in the Bush administration's removal of the U.S. attorneys; and I played no role in deciding which US attorneys were retained and which replaced.

In the case of Iglesias, let's just put this in context. Rove, when he makes that call, has just made a political trip to New Mexico where he is consulting and talking to --

O'DONNELL: Michael, can I just stop you. I want you to go through these steps. But I just want to take the audience along with us. The important thing about what you just described, about Rove's press release, is the stunning Orwellian nature of it. The released material says exactly the opposite. And this press release simply relies on the notion that no one is going to look at the material that was actually released, which shows that Rove was all over the-it was political. He was pushing it and it was all about him pushing it.

Go ahead Michael, with the sequence.

ISIKOFF: If I could just put it in context; that phone call that Carrie just described, Rove to Harriet Miers, very agitated; Rove is talking-is in New Mexico on a political trip, talking to New Mexico Republican party officials, who are complaining about Iglesias's failure to bring cases with political implications that would help the Republican party in New Mexico, and hurt the Democrats: voter fraud and corruption cases.

So when Rove is complaining about Iglesias, he's not complaining because Iglesias isn't doing a good enough job on Medicare fraud or he hasn't talked to people in the office to get an idea of what morale is, to get an idea how good a manager he is. It's purely political complaints that he's passing along, which Miers then relays to the Justice Department, and this comes just before, within a month of when Iglesias is put on the list to be fired.

No other reason or explanation, contemporaneous, has been put forward as to why Iglesias was put on that list. There were ex-post facto reasons that came in later, that never held up, about performance jobs. But all the contemporaneous records show the only complaints were political complaints coming from Rove's office and Rove himself.

O'DONNELL: Carrie Johnson, the record shows that there's absolutely -that Rove doesn't take a minute to consider or look into in any way, nor is he capable of looking into any way, what the quality of the evidence might be about this voter fraud. Only the U.S. attorney knows what he has collected. He cannot show that evidence to Rove. And so Rove wants this guy fired on the assumption that there is some voter fraud thing that he should be prosecuting, even though Rove doesn't have any idea what the evidence is. Right?

JOHNSON: And Rove, in an interview with me last month, acknowledged that he was not in a position to evaluate the strength or weakness of the law enforcement case. He did say, however, in testimony to the House, and in further interviews, that what he had heard from these GOP party leaders in New Mexico about Iglesias, and what he had heard in more than a dozen phone calls from Senator Pete Domenici and his chief of staff at the time, Steve Bell, right during this period, starting in the fall of '06, leading up to when Iglesias got on the firing list, was non-stop complaining, insistence from Domenici, who went all the way up to Josh Bolten, the White House chief of staff, to bring his complaints about Iglesias almost to the president's doorstep.

O'DONNELL: Carrie, just to clarify, not one of those people, Republican party operatives in the state or Senator Domenici or anyone in the White House, had any idea what evidence there was in the U.S. attorney's file. None of them had any idea whether there was something there that should be prosecuted and wasn't being prosecuted.

JOHNSON: No. In fact, Lawrence, there was some leaks around this period of time from perhaps people involved in the investigations, that Iglesias was sitting on the case-or a case or more than one case, because he didn't want to spring an indictment too close to an election, too close to the 2006 midterm election.

He did go on to indict and convicted several of these people, as did his successor as U.S. attorney. I think we can surmise some of this evidence was strong. There are Justice Department rules about how close you can bring a political corruption case in advance of an election. And Iglesias's testimony said he didn't want to cross that line.

O'DONNELL: Thank you Mike Isikoff and Carrie Johnson. Up next, the rage continues in many town halls across the country. Why are people so angry with the new proposed health care plan? This is HARDBALL, only on MSNBC.

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UNIDENTIFIED FEMALE: How will more bureaucrats and probably fewer health care providers make medical service better? I see this health bill not as reform, but pure government take over. I am definitely --

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O'DONNELL: We're back. Time now for the politics fix with Joan Walsh of "Salon," and syndicated columnist Tony Blankley.

Tony Blankley, I know you believe in truth, justice and the American way. So I want you to address that woman's comments that we just heard, where she said this bill will provide fewer health care providers. Will you please tell her that there's nothing in this bill that reduces the number of health care providers in this country? Come on, Tony. Tell her right now.

TONY BLANKLEY, SYNDICATED COLUMNIST: No. There is, of course, as you know, no bill. One of the president's problems-

O'DONNELL: Well, any of the bill that's been written, there's not a sentence about reducing the number of medical school graduates. Right? Can't we just all get along here?

BLANKLEY: It's the same problem that George Bush had in 2005 on Social Security, that unless there's one-you didn't have one specific bill with all the details. As a result, every possible negative could be raised by his opposition.

The same is true for the president today, that there are five separate bills. We have no idea what the final bill is going to look like. Inferences can be drawn, fairly and unfairly, and are. That's, of course, the way it is in American politics. The president is now caught having to counter-punch against a lot of things that he may not have considered.

O'DONNELL: Joan Walsh, Tony is right. There are five written bills. And in not one of them does it say we will have fewer health care providers and here's what the government will do to make that happen. And for Tony and for other Republicans not to be able to acknowledge that this simply has not been written-it is no one's intent. Let's argue about those three new tax brackets invented by the Ways and Means Committee. Why they can't argue about that, and like to have arguments about things that aren't in the bill, is what's getting us stuck here.

JOAN WALSH, "SALON": I think we know why. I think there are no death panels in the bill. Chuck Grassley just blew my mind today. I don't think of him as a bomb throwing, irresponsible, lying conservative. But he lied today. And we know it, Lawrence. There are no death panels. We're not pulling the plug on grandma.

So when people stoop to that level-yes, there are five bills. I will-I'm going to give Tony some credit here. I think Obama has to step up and begin to narrow the range of choices that he will accept, in terms of how we pay for this, and the issue of the public option. If he's not going to go for it-I think he has to and I think he will. But if he's not, if he's going to cave on that, then say that and we'll have a different debate.

But the fact that he hasn't is because he's working with Republicans. He's talking with Chuck Grassley and trying to get a bipartisan bill. That is starting to seem crazy to me, because the Republicans are lying about everything he does.

O'DONNELL: Tony, let me read to you and the audience what Chuck Grassley said today. He was asked about the death panels, as he was bound to be asked about them. He said, "you have a right to be afraid." That's how he begins his answer. And his final line on it is, "we should not have a government program that determines if you're going to pull the plug on grandma."

Now, every Democrat when asked that question says, there is no-nothing like it in the bills; no one is going to do that. It isn't going to happen. Grassley, who knows everything that's in every one of these bills-he's a key Republican negotiator. He refuses to tell the truth to his Iowa voters and say, don't worry; it's not there. You have no reason to be worried about it.

Instead, he says you have a reason to be worried, and we shouldn't do it.

BLANKLEY: As you know, implications that may not be in a specific piece of legislation come up. Let me give you an example of-

O'DONNELL: That ain't one of them. Tony. Come on, that ain't one of them.

BLANKLEY: Let me finish a sentence, please. "New York Times," April 29th of this year, President Barack Obama said his grandmother's hip replacement surgery during the final weeks of her life made him wonder whether expensive procedures for the terminally ill reflect a, quote, sustainable model for health care.

It goes on. Now it's certainly not in this bill right now. But if the public knows that the president of the United States, who has a big role in shaping the final bill, thinks that there's an issue about grandmothers, whether we should-and these are his words from the "New York Times"-that maybe we can't afford to provide it. You can understand why people are a little worried. It doesn't mean it's in the bill now. But we had the same issue on our welfare bill back in 1995.

O'DONNELL: All right, we're going to skip welfare today. Hold it right there, Tony. We'll be back with Joan Walsh and Tony Blankley for more of the politics fix. You're watching HARDBALL, only MSNBC.

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O'DONNELL: We're back with Joan Walsh and Tony Blankley for more of the politics fix. Joan Walsh, the White House completed today this perfect execution on the confirmation of Sonia Sotomayor. How can this same operation that handled that so beautifully-they were told by Republicans, do not try to get her confirmed that fast. We will get in the way. They said never-they steam rolled right past them. They confirmed her fast. How can that same team be so bogged down on health care reform?

WALSH: Well, you know, they got bogged down a lit bit in the beginning about the issue of her speeches and wise Latina remarks, Lawrence. But in the end, she's one person. She had a record of some speeches. She certainly had a judicial record, but she was finite. You could examine everything she stood for, and you could say yes, she's qualified or no she isn't. And they decided she was qualified.

I understand why this is harder. I just think, as I said before, that Obama now needs to step up and really define some of the issues that he has left undefined, because he is losing the momentum at this point.

O'DONNELL: Tony Blankley, what's your recommendation for Republican House members, just stay quiet in August and let the Democrats trip over themselves?

BLANKLEY: No, I think they should be talking to their members carefully, getting their message out. But largely I think this is a Democratic battle with itself right now. The Republican job is to drive useful messages.

O'DONNELL: All right, thank you Joan Walsh and Tony Blankley. Tony Blankley, one of the most honorable Republicans I know, but still can't admit what the truth is in this debate.

Join us again tomorrow night at 5:00 and 7:00 Eastern for more HARDBALL. Right now it's time for "THE ED SCHULTZ SHOW" with Ed Schultz.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.